TOP-UP SIP: WHY YOU SHOULD OPT FOR TOP-UP SIP WHEN YOU HAVE SURPLUS FUNDS?

TOP-UP SIP: WHY YOU SHOULD OPT FOR TOP-UP SIP WHEN YOU HAVE SURPLUS FUNDS?

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Did you recently get a salary hike? Or maybe you received a sudden influx of cash in the form of sale of investments or tax refunds or inheritance or gift or court settlements or winning a lottery – it could be anything. Do you wish that there was a way to increase your SIP investments without exiting your existing SIP mutual funds? Well, your prayers have been answered. Top-up SIPs allow you to top your existing SIP investment amount without needing you start a new SIP. Before we understand about top-up SIPs, let’s go back to what is SIP.

What is SIP?

SIP or Systematic Investment Plan is a means to invest in mutual funds. One of the biggest misconceptions revolving around SIPs is that SIPs are an investment option. However, it is merely an investment tool. So, you do not invest in SIP but invest your money in different investment options through SIP. The traditional form of SIP, also known as regular or vanilla SIP allow investors to invest a fixed sum of money in specified mutual fund schemes at regular intervals for a fixed period of time. Regular SIPs require investors to predetermine the investment amount, periodicity intervals, duration, and mutual fund schemes. However, there is another type of SIP that allows investors to top-up their SIP investment amount on a regular basis.

What is top-up SIP?

Top-up SIP or step-up SIP is a type of SIP that allows investors to top-up their SIP investment amount by a fixed amount or fixed percentage at regular intervals. In essence, you can choose to top-up your SIP investments by a percentage, per say 10% or 20% or by a fixed number such as Rs 2,000 or Rs 5,000, etc.

What are the benefits of investing your money in top-up SIPs?

Following are some of the advantages of step-up SIP:

  1. You can reach financial goals faster – SIP investment amount and investment duration are inversely proportional to each other. So, if you increase your SIP investment amount regularly on a periodic basis, this will mean that your investment horizon would decrease effectively. This means that you’d be able to achieve your financial goals quicker.
  2. Helps to fight inflation – Increasing your SIP investment amount on a regular basis can help you fight the negative impacts of inflation. Why? As inflation has the tendency to decrease the value of your investments. Hence, it may be wise to increase your SIP investment.
  3. Helps to avoid the hassle of opening a new account – Had it not been for step-up SIPs, you would have to grow through the trouble of closing an existing SIP scheme and opening a new one, every time you wished to increase your SIP investment amount.
  4. Helps investors to be aligned with their increasing salaries or income – An individual is expected to witness a growth in their income or salary over time. This is essentially true for salaried investors who receive bonuses or increments on an annual or semi-annual basis. Investors can use this opportunity to be aligned with their investments by maintaining their income vs saving ratio through top-up SIPs.

Just like in the case of any other type of SIP, you can use an SIP calculator to understand the future value of your mutual fund investments. This will aid you to plan your finances in a better way and accordingly decide the amount by which you wish to increase your SIP investments. Happy investing!

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